Do certifiers owe a duty of care to prospective purchasers when issuing an occupation certificate?

There has been quite a lot of media attention recently around the role of private certifiers appointed and paid by developers to certify their residential developments. Depending on the outcome of the upcoming State election, there may well be some reform in this space.

But exactly what duty of care does a principal certifying authority (PCA) actually owe to prospective purchasers when issuing an occupation certificate? You might be surprised to know the answer is very little.

In Ku-ring-gai Council v Chan (2017) NSWCA 226 the NSW Court of Appeal considered the issue of whether Ku-ring-gai Council owed the subsequent purchasers of a property a duty to take reasonable care in issuing an occupation certificate to avoid them suffering economic loss as a result of the previous owner-builder’s defective building work. Ultimately the Court found the Council as a (PCA) did not owe a duty of care to avoid pure economic loss to prospective purchasers of a property when issuing an occupation certificate.

The Court of Appeal also dismissed the notion that a PCA ought to have realised that subsequent purchasers would rely on the fact that an occupation certificate had been issued when deciding whether or not to purchase the property.

The Court noted that an occupation certificate “does not in its terms or effect certify that building work does not, or is not likely to, contain latent defects or that the works comply with the relevant plans and specifications or the conditions of the development consent.”

This decision significantly narrows the scope of claims that can be brought against PCAs for building defects and should be seen as a warning, particularly to purchasers who buy from owner-builders who are no longer required to take out home warranty insurance.

There is always the risk that an owner-builder may not have the financial capacity to satisfy a judgement against him for defective building work and the purchaser may not be able to rely on the certifier who issued the occupation certificate to rectify the defects and pay damages.